World Trade to Decline 10 Percent in 2009

Last Wednesday, the World Trade Organization released its annual report highlighting trends and statistics in global trade (see “World Trade Report 2009”).  The WTO is forecasting a 10 percent decline in world merchandise trade this year (the WTO had predicted a 9 percent decline back in June, so their outlook has darkened).  World merchandise trade slowed down significantly in 2008, growing only 2 percent in real terms, compared to a 6 percent increase in 2007 and an average increase of 5.7 percent from 1998-2008.

The two charts below from the report summarize the situation nicely.  Notice how prior to 2008, growth in merchandise trade exceeded GDP growth (except in 2001).  Last year, trade growth and GDP growth were about the same, and the WTO expects trade growth to lag GDP growth in 2009.

Source: "World Trade Report 2009, WTO (click to enlarge image)

Source: "World Trade Report 2009, WTO (click to enlarge image)


Source: "World Trade Report 2009," WTO (click to enlarge)

Source: "World Trade Report 2009," WTO (click to enlarge)

The report contains a lot of data and statistics, so if you’re interested in a more detailed analysis, I recommend that you download the report.  What interested me the most this year was the report’s theme: trade policy commitments and contingency measures.  Here are a couple of excerpts from the report’s foreword written by Pascal Lamy, the Director-General of the WTO:

“The choice of topic for this year’s World Trade Report is highly relevant to the challenge of ensuring that the channels of trade remain open in the face of economic adversity. Well-balanced contingency measures, designed primarily to deal with a variety of unanticipated market situations, are fundamental to the effectiveness and stability of trade agreements. The Report explores this proposition from a variety of angles. Through the prism of several policy options defined as “contingency” measures – safeguards, anti-dumping and countervailing measures, the re-negotiation of tariff commitments, the raising of tariffs up to their legal maximum levels (bindings), and the use of export taxes – the Report examines why countries resort to such measures, as well as the implications for the trading system in terms of how they are designed and deployed.”

“Whatever the details of circumstance, it is plainly obvious that good agreements need to be responsive to change in ways that do not require continuing negotiation or automatically spark trade tensions. The architectural challenge is to shape trade agreements that strike the right balance between flexibility and commitments. If contingency measures are too easy to use, the agreement will lack credibility. If they are too hard to use, the agreement may prove unstable as governments soften their resolve to abide by commitments.”

Simply stated, the WTO is concerned about countries taking protectionist actions in response to the economic crisis, so it is offering a primer on “contingency measures” and how to use them appropriately in trade agreements.  This topic is particularly relevant in the Doha Round of trade negotiations which have been stalled for years due to disagreements related to farm subsidies and anti-dumping provisions.  During the recent G-8 Summit, the leaders of 17 countries issued the following joint statement: “We reaffirm our commitment to maintain and promote open markets and reject all protectionist measures in trade and investment,” and they expressed hope in concluding the Doha round of negotiations in 2010.

At the end of the day, however, actions speak louder than words, and when I consider what’s been happing in the U.S., for example, with “Buy American,” the dispute with Mexico, and Congressional delays in approving trade agreements, I don’t have much faith in this joint statement.

The bottom line: although world trade will decline in 2009, the costs, risks, and complexities associated with moving goods across borders will continue to increase.  Will the “dark shadows over global trade” darken or dissipate?  The answer depends on the actions countries take in the weeks and months ahead with regards to trade agreements and tariffs.